UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington DC 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended May 31, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 000-09061
 ELECTRO RENT CORPORATION
  CALIFORNIA
(State or Other Jurisdiction 
of Incorporation or Organization)
    
    95-2412961
(I.R.S. Employer
Identification No.)
 6060 Sepulveda Boulevard
Van Nuys, California 91411-2512
 (818) 786-2525
  Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock without par value
    
    The NASDAQ Stock Market LLC
  o þ
 o þ
 þ o
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 o
  Large Accelerated Filer o
    
    Accelerated Filer þ
    

Non-Accelerated Filer o
(Do not check if a smaller
reporting company)
    
    Smaller Reporting Company o
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   DOCUMENTS INCORPORATED BY REFERENCE




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FORWARD LOOKING STATEMENTS
 This Report contains forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You
can find many (but not all) of these statements by looking for words such as approximates,
believes, expects, anticipates, estimates, intends, plans, would, may or other
similar expressions in this Report. We claim the protection of the safe harbor contained in the
Private Securities Litigation Reform Act of 1995. We caution investors that any forward-looking
statements presented in this Report, or that we may make orally or in writing from time to time,
are based on the beliefs of, assumptions made by, and information currently available to, us. Such
statements are based on assumptions, and the actual outcome will be affected by known and unknown
risks, trends, uncertainties and factors that are beyond our control or ability to predict.
Although we believe that our assumptions are reasonable, they are not guarantees of future
performance and some will inevitably prove to be incorrect. As a result, our actual future results
can be expected to differ from our expectations, and those differences may be material.
Accordingly, investors should use caution in relying on past forward-looking statements, which are
based on known results and trends at the time they are made, to anticipate future results or
trends.
 Some of the risks and uncertainties that may cause our actual results, performance or achievements
to differ materially from those expressed or implied by forward-looking statements include the
following: common stock price fluctuations, fluctuations in operating results (including as a
result of changing economic conditions), risks associated with technology changes, risks associated
with customer solvency, competition, risks associated with international operations, risks
associated with our manufacturers and suppliers, dependence on key personnel, control by management
and others, risks associated with possible acquisitions and new business ventures and anti-takeover
provisions. For further discussion of these and other factors, see Item 1A. Risk Factors, Item
7. Managements Discussion and Analysis of Financial Condition and Results of Operations; and
Item 7A Quantitative and Qualitative Disclosure About Interest Rates and Currency Rates, in this
Report, and our other filings with the Securities and Exchange Commission.
 This Report and all subsequent written and oral forward-looking statements attributable to us or
any person acting on our behalf are expressly qualified in their entirety by the cautionary
statements contained or referred to in this section. We do not undertake any obligation to release
publicly any revisions to our forward-looking statements to reflect events or circumstances after
the date of this Report.
  2




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PART I
 Item 1 Business
  The Electro Rent Approach
  
    
    Customer Responsiveness. Our customer service, responsiveness and expert technical staff
provide us a key competitive advantage. Our new Authorized Technology Partnership (ATP)
sales agreement with Agilent, for the United States and Canada, has enabled us to substantially expand the
number and technical expertise of our T&M sales force, which at approximately 73 persons is
the largest among our principal competitors. Our management team is the most experienced and
stable in the industry, averaging 25 years at Electro Rent. Forbes magazine named us as one
of their 100 Most Trustworthy Companies out of the more than 8,000 publicly traded companies
for what Forbes termed transparent and conservative accounting practices and solid corporate
governance and management.
    
    Global Platform. Although our customers represent a cross-section of the economy, much of
our business is conducted with large companies in the aerospace and defense, semiconductor,
electronics and telecommunications industries. As the largest T&M rental, leasing and sales
company in North America, and one of the only rental companies in the world with a global
platform and key locations in the US, Canada, China and Europe, our size and reach appeals to
our multinational customers and assists us in maximizing our equipment utilization and
inventory management across different geographic markets.
    
    Multichannel Offerings. In the last two years, we have expanded our business to offer
customers a single source for their equipment acquisitions, whether they want to rent, lease
or buy new or used equipment. We believe that we offer the greatest breadth of acquisition
options in the industry, allowing our customers to match the appropriate option to their usage
and capital and other factors, such as accounting rules and regulatory requirements. In
addition, spreading costs over multiple channels allows us to maintain the largest sales force
among our principal competitors, which in turn broadens and deepens our customer contacts and
provides them more technical strength and assistance.
 3




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
    
    Deep Vendor Relationships. We have worked to develop and maintain strong relationships
with the major manufacturers of equipment, who are our principal suppliers. We build these
relationships not only on our rental and leasing activities, which makes us one of the largest
customers of these manufacturers, but also by partnering with our vendors to sell their
products. By maintaining close relationships with multiple vendors, we can help our customers
select the right equipment for their needs, better fill customer orders for equipment with
long lead-times, and understand product development trends which tend to shape the nature of
the demands of our rental and leasing customers as well as the prices for our used equipment.
    
    Dynamic Inventory Management Systems. To maximize our overall profit from the rental,
leasing, and sales of equipment, we manage our equipment pool on an on-going basis by
controlling the timing, pricing and mix of our purchases and sales. We acquire new and used
equipment to meet current technological standards and current and anticipated customer demand,
and we sell our used equipment where we believe that is the most lucrative option. We employ
a complex equipment management strategy and our proprietary PERFECT software to adjust our
inventory and pricing on a dynamic basis in order to maximize equipment availability,
utilization and profitability. We manage each specific equipment class based on a separate
assessment of that equipments historical and projected life cycle and numerous other factors,
including the U.S. and global economy, interest rates and new product launches.
 Our Strategic Growth Initiatives.
 
    
    Sales and Distribution Channel Initiative. Beginning in fiscal 2007, we have been
expanding our business by adding new equipment sales channels to our rental, leasing and used
equipment sales offerings. In addition to adding revenue and expanding our sales
organization, we can capture related rental and lease opportunities and provide customers with
a full range of equipment acquisition options. Our ATP agreement with Agilent, commencing in
fiscal 2010, gives us the exclusive right to sell Agilents more complex T&M equipment to
small to medium size customers (who previously purchased directly from Agilent) in the United
States and Canada.
    
    Equipment Pool Expansion Initiatives. Despite the global economic downturn, we have used
our strong balance sheet to make significant equipment purchases to meet T&M rental demand,
support areas of potential growth and keep our equipment pool technologically up-to-date. In
response to increasing customer demand, we increased our purchases of equipment during fiscal
2010 by 54% compared to fiscal 2009, including $22.9 million of equipment acquired in our
purchase of the assets of Telogy, LLC (Telogy) in March 2010. As a result, we have been
able to expand and upgrade our equipment base with equipment that is limited in supply but
growing in demand, enhancing our ability to meet the needs of a wide range of customers, as
well as expand our equipment pool offerings in some related areas such as telecom and
industrial products business.
    
    Vendor Leasing Initiative. In fiscal 2009, we began an initiative to develop a substantial
worldwide T&M leasing program by partnering with Agilent, Ixia, JDSU and other major
manufacturers. These relationships have expanded our leasing program and enhanced our ability
to meet the needs of our customers by offering competitive finance and operating leases.
 Our Markets and Competition
 4




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Our Backlog.
  Other Information about Us
 Years ended May 31,
    
    T&M
    
    
    DP
    
    
    Total2010Rentals and leases
    
    $
    77,874
    
    
    $
    16,327
    
    
    $
    94,201Sales of equipment and other revenues
    
    
    49,282
    
    
    
    2,384
    
    
    
    51,666$
    127,156
    
    
    $
    18,711
    
    
    $
    145,8672009Rentals and leases
    
    $
    77,430
    
    
    $
    20,965
    
    
    $
    98,395Sales of equipment and other revenues
    
    
    29,054
    
    
    
    3,032
    
    
    
    32,086$
    106,484
    
    
    $
    23,997
    
    
    $
    130,4812008Rentals and leases
    
    $
    85,209
    
    
    $
    23,552
    
    
    $
    108,761Sales of equipment and other revenues
    
    
    32,458
    
    
    
    3,317
    
    
    
    35,775$
    117,667
    
    
    $
    26,869
    
    
    $
    144,536
    5




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Obtaining
Additional Information www.electrorent.com
 Item 1A. Risk Factors
  COMMON STOCK PRICE FLUCTUATIONS
 Our Common Stock price has fluctuated significantly and may continue to do so in the future.
 General Factors
 
    
    announcements of developments related to our business;
    
    announcements concerning new products or enhancements in the equipment that we rent,
or developments in our relationships with our customers;
    
    variations in our revenues, gross margins, earnings or other financial results from
investors expectations; and
    
    fluctuations in results of our operations and general conditions in the economy, our
market, and the markets served by our customers.
  Future Sales of our Common Stock
 6




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FLUCTUATIONS IN OPERATING RESULTS
 Historically, our operating results have fluctuated, and we expect that fluctuations could continue
in the future. The fluctuations in our past results have resulted from many factors, some of which
are beyond our control. In the future, these or other factors could have a material adverse impact
on our operating results and cause our stock price to decrease.
 Timing of Equipment Purchases and Sales and Equipment Pool Management
  
    
    our acquisition cost;
    
    our estimates of current and future market demand for rentals;
    
    our estimates of current and future supply of equipment;
    
    the book value of the equipment after depreciation and other impairment;
    
    our estimates of the effect of interest rates on rental and leasing fees as well as
capital financing; and
    
    our estimates of the potential current and future sale prices of equipment.
  Risks Associated with Changing Economic Conditions
 7




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Seasonal and Quarterly Fluctuations
 
    
    weather, holiday and vacation considerations; and
    
    budgetary considerations.
  
    
    changes in customer demands and/or requirements;
    
    new product announcements;
    
    price changes;
    
    changes in delivery dates;
    
    changes in maintenance policies and the pricing policies of equipment manufacturers;
and
    
    price competition from other rental, leasing and finance companies.
 Other Factors
 
    
    competitive forces within our current and anticipated future markets;
    
    changes in interest rates;
    
    our ability to attract customers and meet their expectations;
    
    currency fluctuations and other risks of international operations;
    
    general economic conditions; and
    
    differences in the timing of our spending on acquiring equipment, renting or leasing
that equipment and receiving revenues from our customers.
  RISKS ASSOCIATED WITH TECHNOLOGY CHANGES
 If we do not adequately anticipate or respond to changes in technology, it could have a material
adverse effect on our operating results and stock price.
 Technological Advancements
 Expenses Resulting from Technological Advancements
 8




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Introduction of New Products and Services
 
    
    proper identification of customer needs;
    
    our costs;
    
    timely completion and introduction of products and services as compared to our
competitors;
    
    our ability to differentiate our equipment and services from our competitors; and
    
    market acceptance of our business.
 RISKS ASSOCIATED WITH CUSTOMER SOLVENCY
 If we do not collect on contracts with customers, it could have a material adverse effect on our
operating results and stock price.
  COMPETITION
 If we do not effectively compete in our market, our operating results and stock price will be
materially and adversely affected.
    9




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RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
 If we do not adequately anticipate and respond to the risks inherent in international operations,
it could have a material adverse effect on our operating results and stock price.
 Currency Risks
 Other Risks Associated with International Operations
 
    
    international political and economic conditions;
    
    changes in government regulation in various countries;
    
    trade barriers;
    
    difficulty in staffing our foreign sales and service centers, and in training and
retaining foreign employees;
    
    issues relating to the repatriation of any profits;
    
    adverse tax consequences; and
    
    costs associated with expansion into new territories.
  RISKS ASSOCIATED WITH OUR MANUFACTURERS AND SUPPLIERS
 If we are not able to obtain equipment at favorable rates, it could have a material adverse effect
on our operating results and stock price.
  DEPENDENCE ON KEY PERSONNEL
 If we are unable to recruit and retain qualified personnel, it could have a material adverse effect
on our operating results and stock price.
  10




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CONTROL BY MANAGEMENT AND OTHERS
 Senior management has significant influence over our policies and affairs and may be in a position
to determine the outcome of corporate actions.
   RISKS ASSOCIATED WITH POSSIBLE ACQUISITIONS AND NEW BUSINESS VENTURES
 If we cannot successfully implement any recent or future acquisitions or new business ventures, it
could have a material adverse effect on our operating results and stock price.
  
    
    the difficulty of integrating acquired operations and personnel with our existing
operations;
    
    the difficulty of developing and marketing new products and services;
    
    the diversion of our managements attention as a result of evaluating, negotiating
and integrating acquisitions or new business ventures;
    
    our exposure to unforeseen liabilities of acquired companies; and
    
    the loss of key employees of an acquired operation.
  
    
    charges to our income to reflect the impairment of acquired intangible assets,
including goodwill;
    
    interest costs and debt service requirements for any debt incurred in connection
with an acquisition or new business venture; and
    
    any issuance of securities in connection with an acquisition or new business venture
that dilutes or lessens the rights of our current shareholders.
  11




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RISKS ASSOCIATED WITH FLUCTUATING INTEREST RATES
 Interest rate fluctuations could have a material adverse effect on our operating results and stock
price.
  ANTI-TAKEOVER PROVISIONS
 The anti-takeover provisions contained in our Articles of Incorporation and Bylaws and in
California law could materially and adversely impact the value of our Common Stock.
  
    
    the right of our board of directors to issue preferred stock with rights and
privileges that are senior to the Common Stock, without prior shareholder approval; and
    
    certain limitations of the rights of shareholders to call a special meeting of
shareholders.
 Item 1B. Unresolved Staff Comments
  Item 2. Properties
      12




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Item 3. Legal Proceedings
  Item 4. Reserved
  PART II
 Item 5. Market for the Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
 Market for Common Stock; Holders.
  Fiscal Year 2010
    
    
    Fiscal Year 2009High
    
    
    Low
    
    
    High
    
    
    LowFirst Quarter
    
    $
    10.61
    
    
    $
    8.76
    
    
    $
    14.77
    
    
    $
    11.05Second Quarter
    
    
    11.95
    
    
    
    9.90
    
    
    
    16.00
    
    
    
    9.35Third Quarter
    
    
    12.26
    
    
    
    10.22
    
    
    
    12.44
    
    
    
    7.45Fourth Quarter
    
    
    15.50
    
    
    
    11.62
    
    
    
    10.64
    
    
    
    6.81
 Sales of Unregistered Securities.
  Securities Authorized for Issuance Under Equity Compensation Plans.
  EQUITY COMPENSATION PLAN INFORMATION
 Number of shares ofcommon stock remainingNumber of shares of
    
    
    
    available for futurecommon stock to be
    
    
    
    issuance under equityissued upon exercise
    
    Weighted-average exercise
    
    compensation plansof outstanding options,
    
    price of outstanding options,
    
    (excluding shareswarrants and rights
    
    warrants and rights
    
    reflected in column (a))(a)
    
    (b)
    
    (c)56,659
    
    $15.46
    
    771,990
 13




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Stock Repurchases.
   Dividends.
  Performance Graph.
  Cumulative Five Year Total Return
Value of $100 Invested on May 31, 2005
Fiscal Years Ended May 31
 
 2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010Electro Rent Corporation
    
    
    108
    
    
    
    140
    
    
    
    123
    
    
    
    124
    
    
    
    89
    
    
    
    133NASDAQ Composite
    
    
    105
    
    
    
    106
    
    
    
    129
    
    
    
    124
    
    
    
    87
    
    
    
    111Russell 2000
    
    
    110
    
    
    
    118
    
    
    
    141
    
    
    
    126
    
    
    
    86
    
    
    
    115Value Line Industrial Services
    
    
    106
    
    
    
    121
    
    
    
    149
    
    
    
    135
    
    
    
    93
    
    
    
    113
 14




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Item 6. Selected Financial Data
  Fiscal year ended May 31,2010 (1)
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Operations data:Revenues
    
    $
    145,867
    
    
    $
    130,481
    
    
    $
    144,536
    
    
    $
    126,859
    
    
    $
    116,212Costs of revenues and depreciation
    
    
    81,666
    
    
    
    68,630
    
    
    
    69,901
    
    
    
    55,848
    
    
    
    49,350Selling, general and administrative
expenses
    
    
    46,447
    
    
    
    44,456
    
    
    
    43,940
    
    
    
    42,000
    
    
    
    35,161Bargain purchase gain (2)
    
    
    (679
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest and other, net
    
    
    (1,599
    )
    
    
    (1,507
    )
    
    
    (3,292
    )
    
    
    (5,440
    )
    
    
    (2,705
    )Income before income taxes
    
    
    20,032
    
    
    
    18,902
    
    
    
    33,987
    
    
    
    34,451
    
    
    
    34,406Income tax provision
    
    
    8,435
    
    
    
    7,150
    
    
    
    12,883
    
    
    
    13,402
    
    
    
    12,222Net income
    
    $
    11,597
    
    
    $
    11,752
    
    
    $
    21,104
    
    
    $
    21,049
    
    
    $
    22,184Earnings per share:Basic
    
    $
    0.48
    
    
    $
    0.47
    
    
    $
    0.81
    
    
    $
    0.82
    
    
    $
    0.87Diluted
    
    $
    0.48
    
    
    $
    0.47
    
    
    $
    0.81
    
    
    $
    0.81
    
    
    $
    0.86Shares used in per share calculation:Basic
    
    
    23,932
    
    
    
    24,899
    
    
    
    25,910
    
    
    
    25,716
    
    
    
    25,359Diluted
    
    
    24,004
    
    
    
    24,980
    
    
    
    26,079
    
    
    
    26,053
    
    
    
    25,762Balance sheet data (at end of year):Total assets
    
    $
    276,068
    
    
    $
    271,334
    
    
    $
    293,082
    
    
    $
    284,819
    
    
    $
    260,936Shareholders equity
    
    $
    229,962
    
    
    $
    228,753
    
    
    $
    256,108
    
    
    $
    243,479
    
    
    $
    221,841Shareholders equity per common share
    
    $
    9.60
    
    
    $
    9.55
    
    
    $
    9.87
    
    
    $
    9.43
    
    
    $
    8.68Cash dividends declared per common
share
    
    $
    0.45
    
    
    $
    0.75
    
    
    $
    0.35
    
    
    $
    0.10
    
    
    $
    
 
 (1)
    
    Includes the operating results and balance sheet information of the assets acquired from
Telogy from March 31, 2010, the closing date of the acquisition (see Note 4 to the
consolidated financial statements included in this Form 10-K).(2)
    
    The estimated fair value of the net assets acquired from Telogy exceeded the acquisition
cost, resulting in a bargain purchase gain with respect to this transaction. Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations
   Overview
  15




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Business
Combinations
     Profitability and key business trends
  16




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Fiscal 2010
    
    
    Fiscal 2009
    
    
    Fiscal 2008Net income per diluted common share (EPS)
    
    $
    0.48
    
    
    $
    0.47
    
    
    $
    0.81Net income as a percentage of average assets
    
    
    4.2
    %
    
    
    4.2
    %
    
    
    7.3
    %Net income as a percentage of average equity
    
    
    5.2
    %
    
    
    4.9
    %
    
    
    8.6
    %
   RESULTS OF OPERATIONS
 Fiscal 2010 Compared with Fiscal 2009
 Total Revenues
   Depreciation of Rental and Lease Equipment
 17




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Costs of Revenues Other Than Depreciation
 Selling, General and Administrative Expenses
 Operating Profit
 Interest Income, Net :
 Income Tax Provision
 Fiscal 2009 Compared with Fiscal 2008
 Total Revenues
   Depreciation of Rental and Lease Equipment
 18




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##### 



Costs of Revenues Other Than Depreciation
 Selling, General and Administrative Expenses
 Operating Profit
 Interest Income, Net :
 Income Tax Provision
 Liquidity and capital resources
 Capital Expenditures.
 Share Repurchases and Dividends.
 19




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##### 



Fiscal Year Ended May 31,Three Year(in thousands, except per share information)
    
    Totals
    
    
    2010
    
    
    2009
    
    
    2008Cash dividends paid
    
    $
    41,049
    
    
    $
    14,360
    
    
    $
    15,030
    
    
    $
    11,659Shares repurchased
    
    
    2,194
    
    
    
    44
    
    
    
    2,138
    
    
    
    12Average price per share
    
    $
    10.86
    
    
    $
    8.94
    
    
    $
    10.67
    
    
    $
    12.96Aggregate purchase price
    
    $
    23,360
    
    
    $
    395
    
    
    $
    22,813
    
    
    $
    152Total cash returned to shareholders
    
    $
    64,409
    
    
    $
    14,755
    
    
    $
    37,843
    
    
    $
    11,811
 Cash and Cash Equivalents and Investments.
    Cash Flows and Credit Facilities.
  20




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Three Years Ended(in thousands)
    
    May 31, 2010
    
    
    2010
    
    
    2009
    
    
    2008Cash flows from operating activities1
    
    $
    147,328
    
    
    $
    34,173
    
    
    $
    58,977
    
    
    $
    54,178Proceeds from sale of equipment
    
    
    95,140
    
    
    
    36,661
    
    
    
    27,342
    
    
    
    31,137Total
    
    
    242,468
    
    
    
    70,834
    
    
    
    86,319
    
    
    
    85,315Payments for equipment purchases
    
    
    (189,822
    )
    
    
    (56,891
    )
    
    
    (51,956
    )
    
    
    (80,975
    )Equipment purchased from Telogy
    
    
    (22,923
    )
    
    
    (22,923
    )Net increase in equipment portfolio at
acquisition cost
    
    
    49,057
    
    
    
    13,457
    
    
    
    3,915
    
    
    
    31,685
 
 1
    
    For the components of cash flows from operating activities see the consolidated statements
of cash flows.    21




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##### 



Inflation.
 CONTRACTUAL OBLIGATIONS
   Payments due by periodLess than
    
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations (in thousands)
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsFacility lease payments, not including
property taxes and insurance
    
    $
    988
    
    
    $
    577
    
    
    $
    342
    
    
    $
    69
    
    
    $
    Total
    
    $
    988
    
    
    $
    577
    
    
    $
    342
    
    
    $
    69
    
    
    $
    
 Income Taxes
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
   Asset Lives and Depreciation Methods
 22




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##### 



Investments in Debt Securities Fair Value Measurements,
     Impairment of Long-Lived Assets
 Allowance for Doubtful Accounts
 Goodwill Impairment: Intangibles  Goodwill and Other Segment Reporting
 23




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##### 



Definite-lived Intangible Assets:
 Income Taxes
 Income Taxes
 Off BALANCE SHEET TRANSACTIONS
  Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
  Interest Rate and Market Risk.
   24




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##### 



Changes in Foreign Currencies.
  Item 8. Financial Statements and Supplementary Data
  Quarterly
Information (unaudited)
 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.
 Not Applicable
 Item 9A. Controls and Procedures
  Managements Report on Internal Control Over Financial Reporting
   Changes in Internal Control Over Financial Reporting
  25




---



##### 



Inherent Limitations on Effectiveness of Controls
  26




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal Control
 Integrated Framework
    Internal Control 
Integrated Framework
   
 27




---



##### 



Item 9B. Other Information
  PART III
 Item 10. Directors, Executive Officers and Corporate Governance
  Item 11 Executive Compensation
  Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
  Item 13. Certain Relationships and Related Transactions, and Director
Independence
  Item 14. Principal Accountant Fees and Services
  PART IV
 Item 15. Exhibits and Financial Statement Schedules
 Financial Statements
 Index to Financial Statements:
 PageSee Consolidated Financial Statements included as part of
this Form 10-K. Pursuant to Rule 7-05 of Regulation S-X, the
schedules have been omitted as the information to be set
forth therein is included in the notes of the audited
consolidated financial statements.
    
    F-1
  28




---



##### 



Exhibits
 Number
    
    Document Description3.1
    
    Restated Articles of Incorporation, filed October 3, 1984 (11)3.2
    
    Certificate of Amendment of Restated Articles of Incorporation, filed October 24, 1988
(11)3.3
    
    Certificate of Amendment of Restated Articles of Incorporation, filed October 15, 1997 (5)3.4
    
    Bylaws of Registrant, adopted February 6, 1979 (11)3.5
    
    Amendment of Bylaws of Registrant, adopted October 6, 1994 (1)3.6
    
    Amendment of Bylaws of Registrant, adopted November 15, 1996 (3)3.7
    
    Amendment of Bylaws of Registrant, adopted July 11, 2002 (11)4.1
    
    Form of Common Stock Certificate (11)10.1
    
    Electro Rent Corporation Supplemental Retirement Plan (11) **10.2
    
    Executive Employment Agreement (Amended and Restated as of July 15, 1992) between
Registrant and Daniel Greenberg (11) **10.3
    
    Amendment No. 1 to Executive Employment Agreement (Amended and Restated as of July 15,
1992) between Registrant and Daniel Greenberg, dated October 12, 2001 (6) **10.4
    
    Employment Agreement between Registrant and Steven Markheim, dated as of October 31, 2005
(8) **10.5
    
    Employment Agreement between Registrant and Craig R. Jones, dated as of October 31, 2005
(8) **10.6
    
    1996 Stock Option Plan (2) **10.7
    
    Form of Stock Option Agreement (Incentive Stock Option) (1996 Plan) (2) **10.8
    
    Form of Stock Option Agreement (Nonstatutory Stock Option) (1996 Plan) (2) **10.9
    
    Amendment Number One to 1996 Stock Option Plan, adopted November 1, 1996 (4) **10.10
    
    Amendment No.1 to 1996 Stock Option Plan, 1996 Director Option Plan, and 2002 Employee
Stock Option Plan (7) **10.11
    
    2005 Equity Incentive Plan (9) **10.12
    
    Form of 2005 Stock Option Agreement (9) **10.13
    
    Form of Stock Unit Award Agreement (Employee) (10) **10.14
    
    Form of Stock Unit Award Agreement (Director) (11) **10.15
    
    Form of Indemnification Agreement (11) **
 29




---



##### 



Number
    
    Document Description10.16
    
    Commercial Credit Agreement dated as of September 29, 2008 between Electro Rent
Corporation (the Company) and Union Bank of California, N.A. (12)10.17
    
    First Amendment to Commercial Credit Agreement dated as of March 4, 2009 between the
Company and Union Bank of California, N.A (12)10.18
    
    Second Amendment to Commercial Credit Agreement dated as of September 16, 2009 between
the Company and Union Bank of California, N.A. (12)10.19
    
    Asset Purchase Agreement between Registrant and Telogy, LLC dated as of March 16, 2010
(13)10.20
    
    Agreement between the Company and UBS regarding Auction Rate Securities (12)14
    
    Code of Business Conduct and Ethics (11)21
    
    Subsidiaries of the Registrant. Genstar Rental Electronics, Inc., a Canadian corporation ER International, Inc., a Delaware corporation Electro Rent Asia, Inc., a California corporation Electro Rent (Tianjin) Rental Co., Ltd., a Chinese wholly foreign-owned enterprise Electro Rent Europe NV, a Belgium corporation Electro Rent, LLC, a Delaware limited liability company23
    
    Consent of Deloitte & Touche LLP, the Companys independent registered public accounting
firm (14)31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (14)31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer (14)32.1
    
    Section 1350 Certification by Principal Executive Officer (14)32.2
    
    Section 1350 Certification by Chief Financial Officer (14)
 
 **
    
    This exhibit is a management contract, compensatory plan or arrangement.(1)
    
    Incorporated by reference from Registrants Annual Report on Form 10-K for the fiscal year
ended May 31, 1995.(2)
    
    Incorporated by reference from Registrants Annual Report on Form 10-K for the fiscal year
ended May 31, 1996.(3)
    
    Incorporated by reference from Registrants Annual Report on Form 10-K for the fiscal year
ended May 31, 1997.(4)
    
    Incorporated by reference from Registrants Registration Statement on Form S-8 filed
December 5, 1996 (Registration No. 333-17295).(5)
    
    Incorporated by reference from Registrants Annual Report on Form 10-K for the fiscal year
ended May 31, 1998. 30




---



##### 



(6)
    
    Incorporated by reference from Registrants Annual Report on Form 10-K for the fiscal year
ended May 31, 2003.(7)
    
    Incorporated by reference from Registrants Proxy Statement on Form DEF 14A filed December
2, 2003.(8)
    
    Incorporated by reference from Registrants Current Report on Form 8-K filed November 1,
2005.(9)
    
    Incorporated by reference from Registrants Registration Statement on Form S-8 filed
December 20, 2005 (File No. 333-130487).(10)
    
    Incorporated by reference from Registrants Current Report on Form 8-K filed July 21, 2009.(11)
    
    Incorporated by reference from Registrants Annual Report on Form 10-K for the fiscal year
ended May 31, 2009.(12)
    
    Incorporated by reference from Registrants Quarterly Report on Form 10-Q For the
quarterly period ended February 28, 2010.(13)
    
    Incorporated by reference from Registrants Current Report on Form 8-K filed March 22,
2010.(14)
    
    Filed herewith. Schedule of Financial Statements
  31




---



##### 



SIGNATURES
  Electro Rent CorporationDated:  August 12, 2010.

 By
    /s/ Daniel GreenbergDaniel GreenbergChief Executive Officer and Director  SIGNATURE
    
    TITLE
    
    DATE/s/ Daniel Greenberg
    
    Chairman of the Board and
    
    August 12, 2010Daniel Greenberg
    
    Chief Executive Officer/s/ Craig R. Jones
    
    Chief Financial Officer
    
    August 12, 2010Craig R. Jones
    
    (Principal Financial and
Accounting Officer)/s/ Gerald D. Barrone
    
    Director
    
    August 12, 2010Gerald D. Barrone/s/ Nancy Y. Bekavac
    
    Director
    
    August 12, 2010Nancy Y. Bekavac/s/ Karen J. Curtin
    
    Director
    
    August 12, 2010Karen J. Curtin/s/ Joseph J. Kearns
    
    Director
    
    August 12, 2010Joseph J. Kearns/s/ James S. Pignatelli
    
    Director
    
    August 12, 2010James S. Pignatelli/s/ Suzan K. DelBene
    
    Director
    
    August 12, 2010Suzan K. DelBene
 32




---



##### 



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2010
 Page Number1. Financial StatementsReport of Independent Registered Public Accounting Firm
    
    F-2Consolidated Statements of Operations for each of the
three years in the period ended May 31, 2010
    
    F-3Consolidated Balance Sheets at May 31, 2010 and 2009
    
    F-4Consolidated Statements of Shareholders Equity for each
of the three years in the period ended May 31, 2010
    
    F-5Consolidated Statements of Cash Flows for each of the
three years in the period ended May 31, 2010
    
    F-6Notes to Consolidated Financial Statements
    
    F-7
 F-1




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal Control  Integrated Framework
  
 F-2




---



##### 



ELECTRO RENT 2010 ANNUAL REPORT
  Year Ended May 31,(in thousands, except per share information)
    
    2010
    
    2009
    
    2008Revenues:Rentals and leases
    
    $
    94,201
    
    
    $
    98,395
    
    
    $
    108,761Sales of equipment and other revenues
    
    
    51,666
    
    
    
    32,086
    
    
    
    35,775Total revenues
    
    
    145,867
    
    
    
    130,481
    
    
    
    144,536Operating expenses:Depreciation of rental and lease equipment
    
    
    42,605
    
    
    
    46,056
    
    
    
    44,987Costs of revenues other than depreciation of rental and lease equipment
    
    
    39,061
    
    
    
    22,574
    
    
    
    24,914Selling, general and administrative expenses
    
    
    46,447
    
    
    
    44,456
    
    
    
    43,940Gain on bargain purchase
    
    
    (679
    )
    
    
    
    
    
    
    Total operating expenses
    
    
    127,434
    
    
    
    113,086
    
    
    
    113,841Operating profit
    
    
    18,433
    
    
    
    17,395
    
    
    
    30,695Interest income, net
    
    
    1,599
    
    
    
    1,507
    
    
    
    3,292Income before income taxes
    
    
    20,032
    
    
    
    18,902
    
    
    
    33,987Income tax provision
    
    
    8,435
    
    
    
    7,150
    
    
    
    12,883Net income
    
    $
    11,597
    
    
    $
    11,752
    
    
    $
    21,104Earnings per share:Basic
    
    $
    0.48
    
    
    $
    0.47
    
    
    $
    0.81Diluted
    
    $
    0.48
    
    
    $
    0.47
    
    
    $
    0.81Shares used in per share calculation:Basic
    
    
    23,932
    
    
    
    24,899
    
    
    
    25,910Diluted
    
    
    24,004
    
    
    
    24,980
    
    
    
    26,079
  F-3




---



##### 



ELECTRO RENT 2010 ANNUAL REPORT
  As of May 31,(in thousands, except share information)
    
    2010
    
    2009AssetsCash and cash equivalents
    
    $
    32,906
    
    
    $
    22,215Investments available-for-sale, at fair value (cost of $27,896)
    
    
    
    
    
    
    28,188Investments, trading, at fair value (cost of $14,275 and $21,600)
    
    
    13,323
    
    
    
    19,977Put option
    
    
    952
    
    
    
    1,623Accounts receivable, net of allowance for doubtful accounts of $536 and $317
    
    
    25,670
    
    
    
    16,271Rental and lease equipment, net of accumulated depreciation of $177,380 and $179,318
    
    
    173,647
    
    
    
    158,252Other property, net of accumulated depreciation and amortization of $16,055 and $15,207
    
    
    13,585
    
    
    
    13,781Goodwill
    
    
    3,109
    
    
    
    3,109Intangibles, net of amortization of $2,017 and $1,741
    
    
    1,398
    
    
    
    734Other
    
    
    11,478
    
    
    
    7,184$
    276,068
    
    
    $
    271,334Liabilities and Shareholders EquityLiabilities:Accounts payable
    
    $
    8,294
    
    
    $
    3,291Accrued expenses
    
    
    14,240
    
    
    
    15,023Deferred revenue
    
    
    6,022
    
    
    
    4,281Deferred tax liability
    
    
    17,550
    
    
    
    19,986Total liabilities
    
    
    46,106
    
    
    
    42,581Commitments and contingencies (Note 13)Shareholders equity:Preferred stock, $1 par  shares authorized 1,000,000; none issuedCommon stock, no par  shares authorized 40,000,000; issued and
outstanding 2010 - 23,960,694; 2009 - 23,953,540
    
    
    33,555
    
    
    
    32,596Accumulated other comprehensive income, net of tax
    
    
    
    
    
    
    176Retained earnings
    
    
    196,407
    
    
    
    195,981Total shareholders equity
    
    
    229,962
    
    
    
    228,753$
    276,068
    
    
    $
    271,334
  F-4




---



##### 



ELECTRO RENT 2010 ANNUAL REPORT
  Year Ended May 31,(in thousands)
    
    2010
    
    2009
    
    2008Cash flows from operating activities:Net income
    
    $
    11,597
    
    
    $
    11,752
    
    
    $
    21,104Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    43,759
    
    
    
    47,226
    
    
    
    46,535Put option
loss (gain)
    
    
    671
    
    
    
    (1,623
    )
    
    
    Unrealized
holding (gains) losses for trading securities
    
    
    (671
    )
    
    
    1,623
    
    
    
    Remeasurement loss (gain)
    
    
    93
    
    
    
    445
    
    
    
    (440
    )Gain on sale
of investments available-for-sale
    
    
    (841
    )
    
    
    
    
    
    
    Gain on sale of rental and lease equipment
    
    
    (10,768
    )
    
    
    (8,952
    )
    
    
    (10,830
    )Gain on bargain purchase
    
    
    (679
    )
    
    
    
    
    
    
    Deferred tax liability
    
    
    (2,802
    )
    
    
    4,588
    
    
    
    530Stock compensation expense
    
    
    610
    
    
    
    158
    
    
    
    200Provision for losses on accounts receivable
    
    
    529
    
    
    
    481
    
    
    
    425Excess tax benefit for stock options exercised
    
    
    (62
    )
    
    
    (49
    )
    
    
    (175
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (7,545
    )
    
    
    6,170
    
    
    
    (5,995
    )Other assets
    
    
    (4,268
    )
    
    
    (1,779
    )
    
    
    312Accounts payable
    
    
    939
    
    
    
    508
    
    
    
    (539
    )Accrued expenses
    
    
    2,467
    
    
    
    (945
    )
    
    
    3,186Deferred revenue
    
    
    1,144
    
    
    
    (626
    )
    
    
    (135
    )Net cash provided by operating activities
    
    
    34,173
    
    
    
    58,977
    
    
    
    54,178Cash flows from investing activities:Proceeds from sale of rental and lease equipment
    
    
    36,661
    
    
    
    27,342
    
    
    
    31,137Cash paid for acquisition
    
    
    (24,653
    )
    
    
    
    
    
    
    Payments for purchase of rental and lease equipment
    
    
    (56,891
    )
    
    
    (51,956
    )
    
    
    (80,975
    )Payments for purchase of investments
    
    
    
    
    
    
    (27,896
    )
    
    
    (3,500
    )Redemptions of investments available-for-sale
    
    
    28,737
    
    
    
    
    
    
    
    Redemptions of investments, trading
    
    
    7,325
    
    
    
    2,000
    
    
    
    3,450Payments for purchase of other property
    
    
    (682
    )
    
    
    (275
    )
    
    
    (398
    )Net cash used in investing activities
    
    
    (9,503
    )
    
    
    (50,785
    )
    
    
    (50,286
    )Cash flows from financing activities:Excess tax benefit for stock options exercised
    
    
    62
    
    
    
    49
    
    
    
    175Proceeds from issuance of common stock
    
    
    454
    
    
    
    1,327
    
    
    
    1,366Payments for repurchase of common stock
    
    
    (395
    )
    
    
    (22,813
    )
    
    
    (152
    )Payment of dividends
    
    
    (14,360
    )
    
    
    (15,030
    )
    
    
    (11,659
    )Net cash used in financing activities
    
    
    (14,239
    )
    
    
    (36,467
    )
    
    
    (10,270
    )Net increase (decrease) in cash and cash equivalents
    
    
    10,431
    
    
    
    (28,275
    )
    
    
    (6,378
    )Effect of exchange rate changes on cash
    
    
    260
    
    
    
    (474
    )
    
    
    170Cash and cash equivalents at beginning of year
    
    
    22,215
    
    
    
    50,964
    
    
    
    57,172Cash and cash equivalents at end of year
    
    $
    32,906
    
    
    $
    22,215
    
    
    $
    50,964
  F-5




---



##### 



ELECTRO RENT 2010 ANNUAL REPORT
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 AccumulatedCommon Stock
    
    
    Other
    
    
    
    
    
    
    TotalThree years ended May 31,
    
    Number
    
    
    
    
    
    
    Comprehensive
    
    
    Retained
    
    
    Shareholders(in thousands)
    
    of Shares
    
    
    Amount
    
    
    Income/(Loss)
    
    
    Earnings
    
    
    Equity| | | | |Balance, May 31, 2007
    
    
    25,813
    
    
    $
    32,212
    
    
    $
    
    
    
    $
    211,267
    
    
    $
    243,479Exercise of stock options and issuance of restricted shares
    
    
    144
    
    
    
    1,366
    
    
    
    
    
    
    
    
    
    
    
    1,366Tax benefit for stock options exercised
    
    
    
    
    
    
    175
    
    
    
    
    
    
    
    
    
    
    
    175Non-cash stock compensation
    
    
    
    
    
    
    200
    
    
    
    
    
    
    
    
    
    
    
    200Repurchase of common stock
    
    
    (12
    )
    
    
    (15
    )
    
    
    
    
    
    
    (137
    )
    
    
    (152
    )Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,079
    )
    
    
    (9,079
    )Cumulative effect of adoption of FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (366
    )
    
    
    (366
    )Comprehensive income:Unrealized losses on investments available-for-sale,
net of $380 of tax benefit
    
    
    
    
    
    
    
    
    
    
    (619
    )
    
    
    
    
    
    
    (619
    )Net income for the year ended May 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,104
    
    
    
    21,104Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,485Balance, May 31, 2008
    
    
    25,945
    
    
    
    33,938
    
    
    
    (619
    )
    
    
    222,789
    
    
    
    256,108Exercise of stock options and issuance of restricted shares
    
    
    147
    
    
    
    1,327
    
    
    
    
    
    
    
    
    
    
    
    1,327Tax benefit for stock options exercised
    
    
    
    
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    49Non-cash stock compensation expense
    
    
    
    
    
    
    158
    
    
    
    
    
    
    
    
    
    
    
    158Repurchase of common stock
    
    
    (2,138
    )
    
    
    (2,876
    )
    
    
    
    
    
    
    (19,937
    )
    
    
    (22,813
    )Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,623
    )
    
    
    (18,623
    )Comprehensive income:Realized loss on transfer of investments
available-for-sale to investments, trading
    
    
    
    
    
    
    
    
    
    
    619
    
    
    
    
    
    
    
    619Unrealized gains on investments available-for-sale,
net of $116 of tax expense
    
    
    
    
    
    
    
    
    
    
    176
    
    
    
    
    
    
    
    176Net income for the year ended May 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,752
    
    
    
    11,752Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,547Balance, May 31, 2009
    
    
    23,954
    
    
    
    32,596
    
    
    
    176
    
    
    
    195,981
    
    
    
    228,753Exercise of stock options and issuance of restricted shares
    
    
    51
    
    
    
    454
    
    
    
    
    
    
    
    
    
    
    
    454Tax deficit for stock options expired, net of tax benefit
for stock options exercised
    
    
    
    
    
    
    (45
    )
    
    
    
    
    
    
    
    
    
    
    (45
    )Non-cash stock compensation expense
    
    
    
    
    
    
    610
    
    
    
    
    
    
    
    
    
    
    
    610Repurchase of common stock
    
    
    (44
    )
    
    
    (60
    )
    
    
    
    
    
    
    (335
    )
    
    
    (395
    )Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,836
    )
    
    
    (10,836
    )Comprehensive income:Unrealized gains arising during the year,
net of $238 of tax expense
    
    
    
    
    
    
    
    
    
    
    310
    
    
    
    
    
    
    
    310Less: Reclassification adjustment for gains realized
in net income, net of $354 of tax expense
    
    
    
    
    
    
    
    
    
    
    (486
    )
    
    
    
    
    
    
    (486
    )Realized gain on investments available-for-sale,
net of $116 of tax expense
    
    
    
    
    
    
    
    
    
    
    (176
    )
    
    
    
    
    
    
    (176
    )Net income for the year ended May 31, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,597
    
    
    
    11,597Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,421Balance, May 31, 2010
    
    
    23,961
    
    
    $
    33,555
    
    
    $
    
    
    
    $
    196,407
    
    
    $
    229,962
  F-6




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 1: Summary of Significant Accounting Policies
 Basis of Presentation:
 Business and Organization:
  Use of Estimates:
 Revenue Recognition:
 F-7




---



##### 



Rental and Lease Equipment and Other Property:
 Income Taxes:
   Impairment of Assets:
 Goodwill and Other Intangible Assets:
 F-8




---



##### 



Cash and Cash Equivalents:
 Investments  Available-for-Sale and Trading:
 Allowance for Doubtful Accounts:
 Concentration of Credit Risk:
  Foreign Currency:
 F-9




---



##### 



Derivatives Not Designated asHedging Instruments
    
    Consolidated Balance Sheet Location
    
    
    Fair ValueForeign exchange forward contracts
    
    Other
    
    $
    176
  Derivatives Not Designated as
    
    Location of Gain Recognized in Income onHedging Instruments
    
    Derivatives
    
    

GainForeign exchange forward contracts
    
    Selling, general and administrative expenses
    
    $
    390
 Net Income Per Common and Common Equivalent Share:
 Cash Flow:
 Year ended May 31,
    
    2010
    
    
    2009
    
    
    2008Interest
    
    $
    21
    
    
    $
    15
    
    
    $
    13Income taxes
    
    
    10,022
    
    
    
    1,104
    
    
    
    8,529
 Supplemental Disclosure of Non-Cash Investing and Financing Activities:
 Stock-Based Compensation:
 F-10




---



##### 



Fair Value Measurements:
  Recent Accounting Pronouncements:
       F-11




---



##### 



Note 2: Investments
   .
 F-12




---



##### 



At May 31, 2009Available-for-sale SecuritiesGross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueGovernment bond fund
    
    $
    13,896
    
    
    $
    25
    
    
    $
    
    
    
    $
    13,921Corporate bond fund
    
    
    14,000
    
    
    
    267
    
    
    
    
    
    
    
    14,267$
    27,896
    
    
    $
    292
    
    
    $
    
    
    
    $
    28,188
 Note 3: Fair Value Measurements
  Level 1  Observable inputs, such as quoted prices in active markets for identical assets
or liabilities;Level 2  Inputs, other than the quoted prices in active markets, that are observable
either directly or through corroboration with observable market data; andLevel 3  Unobservable inputs, for which there is little or no market data for the assets
or liabilities, such as internally-developed valuation models.
 F-13




---



##### 



At May 31, 2010Quoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableInstruments
    
    
    Inputs
    
    
    Inputs
    
    
    Total(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    BalanceAssetsMoney market funds
    
    $
    27,802
    
    
    $
    
    
    
    $
    
    
    
    $
    27,802Auction rate securities
    
    
    
    
    
    
    
    
    
    
    13,323
    
    
    
    13,323Put option
    
    
    
    
    
    
    
    
    
    
    952
    
    
    
    952Supplemental executive
retirement plan
    
    
    2,081
    
    
    
    
    
    
    
    
    
    
    
    2,081Foreign exchange
forward contracts
    
    
    
    
    
    
    176
    
    
    
    
    
    
    
    176Total assets measured
at fair value
    
    $
    29,883
    
    
    $
    176
    
    
    $
    14,275
    
    
    $
    44,334LiabilitiesSupplemental executive
retirement plan
    
    $
    2,081
    
    
    $
    
    
    
    $
    
    
    
    $
    2,081Total liabilities
measured at fair value
    
    $
    2,081
    
    
    $
    
    
    
    $
    
    
    
    $
    2,081
 At May 31, 2009Quoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableInstruments
    
    
    Inputs
    
    
    Inputs
    
    
    Total(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    BalanceAssetsMoney market funds
    
    $
    15,600
    
    
    $
    
    
    
    $
    
    
    
    $
    15,600Government bond fund
    
    
    13,921
    
    
    
    
    
    
    
    
    
    
    
    13,921Corporate bond fund
    
    
    14,267
    
    
    
    
    
    
    
    
    
    
    
    14,267Auction rate securities
    
    
    
    
    
    
    
    
    
    
    19,977
    
    
    
    19,977Put option
    
    
    
    
    
    
    
    
    
    
    1,623
    
    
    
    1,623Supplemental executive
retirement plan
    
    
    1,871
    
    
    
    
    
    
    
    
    
    
    
    1,871Total assets measured
at fair value
    
    $
    45,659
    
    
    $
    
    
    
    $
    21,600
    
    
    $
    67,259LiabilitiesForeign exchange
forward contract
    
    $
    
    
    
    $
    81
    
    
    $
    
    
    
    $
    81Supplemental executive
retirement plan
    
    
    1,871
    
    
    
    
    
    
    
    
    
    
    
    1,871Total liabilities
measured at fair value
    
    $
    1,871
    
    
    $
    81
    
    
    $
    
    
    
    $
    1,952
  F-14




---



##### 



May 31,2010
    
    
    2009Auction
    
    
    
    
    
    
    AuctionRate
    
    
    
    
    
    
    RatePut Option
    
    
    Securities
    
    
    Put Option
    
    
    SecuritiesFair value at beginning of period
    
    $
    1,623
    
    
    $
    19,977
    
    
    $
    
    
    
    $
    22,601Settlements (at par)
    
    
    
    
    
    
    (7,325
    )
    
    
    
    
    
    
    (2,000
    )Issuance of put option
    
    
    
    
    
    
    
    
    
    
    1,891
    
    
    
    Unrealized gains (losses) included in
interest income, net
    
    
    (671
    )
    
    
    671
    
    
    
    (268
    )
    
    
    (624
    )Fair value at end of period
    
    $
    952
    
    
    $
    13,323
    
    
    $
    1,623
    
    
    $
    19,977
  Note 4: Acquisition
  F-15




---



##### 



Total cash consideration
    
    $
    24,653Preliminary purchase price allocation:Accounts receivable
    
    
    2,723Rental and lease equipment
    
    
    22,922Customer relationships acquired
    
    
    940Other
    
    
    34Accrued expenses
    
    
    (189
    )Deferred tax liability
    
    
    (481
    )Deferred revenue
    
    
    (617
    )Net assets acquired
    
    
    25,332Bargain purchase gain, net of estimated taxes of $481
    
    $
    (679
    )
      Year ended May 31,
    
    2010
    
    
    2009Revenues
    
    $
    161,518
    
    
    $
    154,169Net income
    
    $
    9,453
    
    
    $
    7,109Earnings per share:Basic
    
    $
    0.40
    
    
    $
    0.29Diluted
    
    $
    0.39
    
    
    $
    0.28
 Note 5: Goodwill and Other Intangible Assets
   F-16




---



##### 



Balance as ofJune 1, 2009(net of
    
    
    
    
    
    
    
    
    
    
    Balance as ofamortization)
    
    
    Additions
    
    
    Amortization
    
    
    May 31, 2010Goodwill
    
    $
    3,109
    
    
    $
    
    
    
    $
    
    
    
    $
    3,109Trade name
    
    
    411
    
    
    
    
    
    
    
    
    
    
    
    411Non-compete agreements
    
    
    166
    
    
    
    
    
    
    
    (100
    )
    
    
    66Customer relationships
    
    
    157
    
    
    
    940
    
    
    
    (176
    )
    
    
    921$
    3,843
    
    
    $
    940
    
    
    $
    (276
    )
    
    $
    4,507
 Balance as ofJune 1, 2008(net of
    
    
    
    
    
    
    
    
    
    
    Balance as ofamortization)
    
    
    Additions
    
    
    Amortization
    
    
    May 31, 2009Goodwill
    
    $
    3,109
    
    
    $
    
    
    
    $
    
    
    
    $
    3,109Trade name
    
    
    411
    
    
    
    
    
    
    
    
    
    
    
    411Non-compete agreements
    
    
    266
    
    
    
    
    
    
    
    (100
    )
    
    
    166Customer relationships
    
    
    392
    
    
    
    
    
    
    
    (235
    )
    
    
    157$
    4,178
    
    
    $
    
    
    
    $
    (335
    )
    
    $
    3,843
    May 31, 2010Estimated
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingUseful Life
    
    
    Amount
    
    
    Amortization
    
    
    AmountTrade name
    
    
    
    
    
    $
    411
    
    
    $
    
    
    
    $
    411Non-compete agreements
    
    2-5 years
    
    
    1,050
    
    
    
    (984
    )
    
    
    66Customer relationships
    
    3-8 years
    
    
    1,954
    
    
    
    (1,033
    )
    
    
    921$
    3,415
    
    
    $
    (2,017
    )
    
    $
    1,398
 May 31, 2009Estimated
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingUseful Life
    
    
    Amount
    
    
    Amortization
    
    
    AmountTrade name
    
    
    
    
    
    $
    411
    
    
    $
    
    
    
    $
    411Non-compete agreements
    
    2-5 years
    
    
    1,050
    
    
    
    (884
    )
    
    
    166Customer relationships
    
    3-4 years
    
    
    1,014
    
    
    
    (857
    )
    
    
    157$
    2,475
    
    
    $
    (1,741
    )
    
    $
    734
 F-17




---



##### 



FutureYear ending May 31,
    
    Amortization2011
    
    $
    1842012
    
    
    1182013
    
    
    1182014
    
    
    1182015
    
    
    118Thereafter
    
    
    331$
    987
 Note 6: Borrowings
  Note 7: Income Taxes
     2010
    
    
    2009
    
    
    2008Balance as of June 1
    
    $
    3,943
    
    
    $
    3,693
    
    
    $
    3,119Increases related to prior year tax positions
    
    
    748
    
    
    
    250
    
    
    
    574Balance as of May 31
    
    $
    4,691
    
    
    $
    3,943
    
    
    $
    3,693
  F-18




---



##### 



2010
    
    
    2009
    
    
    2008Domestic
    
    $
    20,184
    
    
    $
    19,182
    
    
    $
    31,326Foreign
    
    
    (152
    )
    
    
    (280
    )
    
    
    2,661$
    20,032
    
    
    $
    18,902
    
    
    $
    33,987
  2010
    
    
    2009
    
    
    2008CurrentFederal
    
    $
    8,117
    
    
    $
    751
    
    
    $
    5,707State
    
    
    1,698
    
    
    
    968
    
    
    
    1,589Foreign
    
    
    1,427
    
    
    
    639
    
    
    
    1,954DeferredFederal
    
    
    (2,476
    )
    
    
    4,131
    
    
    
    3,489State
    
    
    (330
    )
    
    
    226
    
    
    
    694Foreign
    
    
    (1
    )
    
    
    435
    
    
    
    (550
    )$
    8,435
    
    
    $
    7,150
    
    
    $
    12,883
  2010
    
    
    2009
    
    
    2008Statutory federal rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State taxes, net of federal benefit
    
    
    4.6
    
    
    
    4.2
    
    
    
    4.4Changes in reserves due to changes in tax estimates
    
    
    1.4
    
    
    
    (1.7
    )
    
    
    Permanent differences resulting from tax advantaged
investments
    
    
    
    
    
    
    (1.2
    )
    
    
    (1.1
    )Permanent differences resulting from valuation allowances
    
    
    1.1
    
    
    
    1.4
    
    
    
    (0.5
    )Other
    
    
    
    
    
    
    0.1
    
    
    
    0.1Effective tax rate
    
    
    42.1
    %
    
    
    37.8
    %
    
    
    37.9
    %
 F-19




---



##### 



2010
    
    
    2009Deferred tax assets:Goodwill and intangible assets
    
    $
    2,099
    
    
    $
    2,880Allowance for doubtful accounts
    
    
    213
    
    
    
    126Deferred compensation and benefits
    
    
    1,482
    
    
    
    1,342Unrealized gains on securities
    
    
    
    
    
    
    (116
    )Tax credits
    
    
    4,691
    
    
    
    3,943Net operating losses
    
    
    398
    
    
    
    152Other
    
    
    1,903
    
    
    
    1,304Valuation allowance
    
    
    (468
    )
    
    
    (260
    )10,318
    
    
    
    9,371Deferred tax liabilities:Accumulated depreciation
    
    
    (27,423
    )
    
    
    (29,357
    )Other
    
    
    (445
    )
    
    
    Net deferred tax liabilities
    
    $
    (17,550
    )
    
    $
    (19,986
    )
   Note 8: Sales-type Leases
  2010
    
    
    2009Gross minimum lease payments receivable
    
    $
    6,874
    
    
    $
    3,247Less  unearned interest
    
    
    (355
    )
    
    
    (193
    )Net investment in sales-type lease receivables
    
    $
    6,519
    
    
    $
    3,054
 F-20




---



##### 



FutureYear ending May 31,
    
    Amortization2011
    
    $
    3,6772012
    
    
    2,4262013
    
    
    7262014
    
    
    45$
    6,874
 Note 9: Computation of Earnings Per Share
  2010
    
    
    2009
    
    
    2008Denominator:Denominator for basic earnings per share  weighted
average common shares outstanding
    
    
    23,932
    
    
    
    24,899
    
    
    
    25,910Effect of dilutive options and restricted stock
    
    
    72
    
    
    
    81
    
    
    
    169Diluted shares used in per share calculation
    
    
    24,004
    
    
    
    24,980
    
    
    
    26,079Net income
    
    $
    11,597
    
    
    $
    11,752
    
    
    $
    21,104Earnings per share:Basic
    
    $
    0.48
    
    
    $
    0.47
    
    
    $
    0.81Diluted
    
    $
    0.48
    
    
    $
    0.47
    
    
    $
    0.81
  Note 10: Allowance for Doubtful Accounts
   2010
    
    
    2009
    
    
    2008Beginning of year
    
    $
    317
    
    
    $
    359
    
    
    $
    251Provision for doubtful accounts
    
    
    517
    
    
    
    481
    
    
    
    425Write-offs
    
    
    (298
    )
    
    
    (523
    )
    
    
    (317
    )End of year
    
    $
    536
    
    
    $
    317
    
    
    $
    359
 Note 11: Rentals Under Noncancellable Operating Leases
  F-21




---



##### 



2011
    
    $
    3,5222012
    
    
    2,4552013
    
    
    6462014
    
    
    1$
    6,624
 Note 12: Other Property
  2010
    
    
    2009Land
    
    $
    6,985
    
    
    $
    6,985Buildings
    
    
    14,451
    
    
    
    14,387Furniture and other equipment
    
    
    8,067
    
    
    
    7,493Leasehold improvements
    
    
    137
    
    
    
    12329,640
    
    
    
    28,988Less  accumulated depreciation and amortization
    
    
    (16,055
    )
    
    
    (15,207
    )$
    13,585
    
    
    $
    13,781
  Note 13: Commitments and Contingencies
   2011
    
    $
    5772012
    
    
    2962013
    
    
    462014
    
    
    462015
    
    
    23$
    988
   F-22




---



##### 



Note 14: Stock Option Plans and Equity Incentive Plan
   WeightedAverageWeighted
    
    
    RemainingAverage
    
    
    Contractual
    
    
    AggregateExercise
    
    
    Term (in
    
    
    IntrinsicShares
    
    
    Price
    
    
    years)
    
    
    ValueOutstanding at May 31, 2009
    
    
    369
    
    
    $
    10.39Granted
    
    
    
    
    
    
    Exercised
    
    
    (51
    )
    
    
    8.86Forfeited/cancelled
    
    
    (261
    )
    
    
    9.59Outstanding at May 31, 2010
    
    
    57
    
    
    $
    15.46
    
    
    
    1.0
    
    
    $
    29Vested and expected to vest at May 31, 2010
    
    
    57
    
    
    $
    15.46
    
    
    
    1.0
    
    
    $
    29Vested and exercisable at May 31, 2010
    
    
    57
    
    
    $
    15.46
    
    
    
    1.0
    
    
    $
    29
  Restricted Stock
  F-23




---



##### 



Restricted Stock Units
  Weighted AverageGrantRestricted
    
    
    DateStock Units
    
    
    Fair ValueNonvested at June 1, 2009
    
    
    
    
    
    $
    Granted
    
    
    166
    
    
    
    10.22Vested
    
    
    (16
    )
    
    
    (11.03
    )Canceled
    
    
    
    
    
    
    Nonvested at May 31, 2010
    
    
    150
    
    
    $
    10.14Expected to vest at May 31, 2010
    
    
    150
    
    
    $
    10.14
   Accounting for Share Based Payments
     F-24




---



##### 



Note 15: Savings Plan, Employee Stock Ownership Plan and Retirement Plan
     Note 16: Segment Reporting and Related Disclosures
    F-25




---



##### 



T&M
    
    
    DP
    
    
    Total2010Rentals and leases
    
    $
    77,874
    
    
    $
    16,327
    
    
    $
    94,201Sales of equipment and other revenues
    
    
    49,282
    
    
    
    2,384
    
    
    
    51,666$
    127,156
    
    
    $
    18,711
    
    
    $
    145,8672009Rentals and leases
    
    $
    77,430
    
    
    $
    20,965
    
    
    $
    98,395Sales of equipment and other revenues
    
    
    29,054
    
    
    
    3,032
    
    
    
    32,086$
    106,484
    
    
    $
    23,997
    
    
    $
    130,4812008Rentals and leases
    
    $
    85,209
    
    
    $
    23,552
    
    
    $
    108,761Sales of equipment and other revenues
    
    
    32,458
    
    
    
    3,317
    
    
    
    35,775$
    117,667
    
    
    $
    26,869
    
    
    $
    144,536
   Year ended May 31,
    
    2010
    
    
    2009
    
    
    2008Revenues: 1U.S.
    
    $
    124,618
    
    
    $
    111,184
    
    
    $
    123,396Other 2
    
    
    21,249
    
    
    
    19,297
    
    
    
    21,140Total
    
    $
    145,867
    
    
    $
    130,481
    
    
    $
    144,536
 As of May 31,
    
    2010
    
    
    2009
    
    
    2008Net Long Lived Assets: 3U.S.
    
    $
    166,533
    
    
    $
    151,204
    
    
    $
    165,984Other 2
    
    
    25,206
    
    
    
    24,672
    
    
    
    25,003Total
    
    $
    191,739
    
    
    $
    175,876
    
    
    $
    190,987
 
 1
    
    Revenues by country are based on the location of shipping destination, whether the
order originates in the U.S. parent or a foreign subsidiary.2
    
    Other consists of other foreign countries that each individually accounts for less that
10% of the total revenues or assets.3
    
    Net long-lived assets include rental and lease equipment, other property, goodwill and
intangibles, net of accumulated depreciation and amortization. F-26




---



##### 



Note 17: Quarterly Information (Unaudited)
  IncomeTotal
    
    
    Gross
    
    
    Before
    
    
    Net
    
    
    Earnings per shareRevenues
    
    
    Profit
    
    
    Taxes
    
    
    Income
    
    
    Basic
    
    
    DilutedFiscal Year 2010First Quarter
    
    $
    32,201
    
    
    $
    13,639
    
    
    $
    3,639
    
    
    $
    2,075
    
    
    $
    0.09
    
    
    $
    0.09Second Quarter
    
    
    36,577
    
    
    
    16,251
    
    
    
    6,942
    
    
    
    4,011
    
    
    
    0.17
    
    
    
    0.17Third Quarter
    
    
    33,034
    
    
    
    15,456
    
    
    
    4,064
    
    
    
    2,151
    
    
    
    0.09
    
    
    
    0.09Fourth Quarter
    
    
    44,055
    
    
    
    18,855
    
    
    
    5,387
    
    
    
    3,360
    
    
    
    0.14
    
    
    
    0.14Annual totals
    
    $
    145,867
    
    
    $
    64,201
    
    
    $
    20,032
    
    
    $
    11,597
    
    
    $
    0.48
    
    
    $
    0.48Fiscal Year 2009First Quarter
    
    $
    34,986
    
    
    $
    18,036
    
    
    $
    6,577
    
    
    $
    4,371
    
    
    $
    0.17
    
    
    $
    0.17Second Quarter
    
    
    35,433
    
    
    
    16,893
    
    
    
    5,471
    
    
    
    3,494
    
    
    
    0.14
    
    
    
    0.14Third Quarter
    
    
    30,059
    
    
    
    13,347
    
    
    
    3,192
    
    
    
    1,883
    
    
    
    0.08
    
    
    
    0.08Fourth Quarter
    
    
    30,003
    
    
    
    13,575
    
    
    
    3,662
    
    
    
    2,004
    
    
    
    0.08
    
    
    
    0.08Annual totals
    
    $
    130,481
    
    
    $
    61,851
    
    
    $
    18,902
    
    
    $
    11,752
    
    
    $
    0.47
    
    
    $
    0.47
 Note 18: Subsequent Events
  F-27